Capital flight from Bangladesh has, of late, become a growing concern for policy makers and social thinkers. Recently, there had been several newspaper reports on money going out of the country through illegal channels or legal inflow of foreign exchange being stopped and diverted elsewhere. While Bangladesh remains steeped in staggering external debt, it is also concurrently witnessing a substantial outflow of domestic capital. This situation raises serious policy concerns for its development prospects. By applying the Autoregressive Distributed Lag procedures the estimated results suggest that political instability is the single most significant cause of capital flight from Bangladesh, while increases in corporate income taxes, higher real interest rate differentials between the capital-haven countries and Bangladesh, and lower gross domestic product (GDP) growth rates also significantly contribute to capital flight.
As a matter of fact, illicit outflow of funds from Bangladesh equals 38.5 per cent of the country's combined official development assistance and foreign investment received between 2008 and 2012. This was revealed by a report titled "Illicit Financial Flows and Development Indices: 2008-2012" by the Global Financial Integrity (GFI), a Washington-based research organisation. The illicit outflows ate away 1.1 per cent of the country's gross domestic product and per capita loss stood at $6.84. The loss accounted for 58.9 per cent of the country's education spending or 30.1 per cent of health expenses and amounts to 12.7 per cent of the total tax revenues of the country. Leakages in the balance of payments account for 83.1 per cent of the capital that went out of Bangladesh over the last four decades. Such leakage occurs when there is a mismatch between inflow and outflow of foreign currency. The authorities then mark the lost money as "Error and Omission" in the country's balance of payments account. Trade mis-invoicing, which includes mis-pricing in imports and exports, accounts for the remaining 16.9 per cent of the capital flight. The actual amount of money going out of the country might be higher as updated figures are not available.
Capital flight is the unrecorded movement of funds between a country and the rest of the world. This money disappears from the records of the country of origin, and does not normally return. On average, $1.31 billion was funneled out of Bangladesh per year between 2003 and 2012, according to the earlier estimate of the organisation. The report by GFI, also provides a comparison of illicit financial flows from some of the world's poorest nations and compares those values to some traditional indicators of development.
Domestic spending on fundamental social needs, such as education and health, are often overwhelmed by the amount of illicit money flowing out of the economy and with it, domestic resources that could be mobilised to address basic human needs.
This negative relationship might be caused by a significant loss of domestic resources as tax that could have been collected by the government, or capital that could have been retained by the economy if trade mis-invoicing had not taken place.
There appears to be a strong connection between high levels of illicit financial flows and the poverty gap. A plotting of illicit outflows against the number of people living on $1.25 per day and those living on $2 per day shows that when illicit financial flows are high, poverty rates are high at both the levels. This calls for a concerted action by the international community to assist nations that have high levels of illicit flows as well as help them in their bid to fight capital flight.
The United Nations should adopt clear and concise Sustainable Development Goals (SDGs) to halve trade-related illicit financial flows by 2030. Governments should significantly improve their customs enforcement by equipping and training officers to better detect mis-invoicing in intentional trade transactions.
Bangladesh is not the only country in the world that is a victim of the flight of capital or capital outflows. During the last summer months, the greatest shock for investors was undoubtedly the realiasation that emerging markets posed a potential threat to global growth. Emerging markets have been the victims of relentless capital outflows since July. Capital outflows from China surged to $190 billion recently, forcing the authorities to intervene on an unprecedented scale to defend the Chinese currency.
A UNDP study shows a grim trend of massive illicit capital flight from Bangladesh. According to the study, over the last four decades, the country lost $800 million a year on average in capital flight driven by balance of payment leakages, trade mis-invoicing and unreported remittances. The total capital flight from Bangladesh accounts for 30.4 per cent of its GDP of over $100 billion in 2010. The UNDP looked into illicit financial flows from eight low income and Least Developed Countries (LDCs) including Bangladesh. By 2008, these countries were losing between $20 billion and $28 billion annually due to illicit financial flows. This sum is roughly equivalent to the amount of Official Development Assistance that flows into these economies annually.
Bangladeshi citizens' deposits with various Swiss banks rose by 36.02 per cent year-on-year in 2014, according to the Swiss central bank. The amount rose up to Tk. 42.83 billion (506 million Swiss franc) last year from Tk 31.49 billion (372 million franc) in the previous year -- shows the latest data of Swiss National Bank (SNB). In 2012, the amount was Tk. 19.91 billion.
Apart from Bangladesh, a number of other countries, including the UK, Germany and Italy, saw their exposure to Swiss banks increase during the year, resulting in the rise in funds held by foreign clients at Switzerland's banking institutions. Overall, the money held in Swiss banks by their foreign clients from across the world rose to 1.50 trillion Swiss Franc in 2014 from 1.32 trillion in 2013. However, Indian citizens' deposits with Swiss banks fell by more than 10 per cent to 1.8 billion Swiss Franc last year amid the Indian government's efforts to bring back the unaccounted money. Switzerland is not the only country that has received Bangladeshi funds, as the names of Canada, Malaysia and the UAE are also on the list.
In Bangladesh, Bangladesh Bank (BB), the National Board of Revenue (NBR) and the Anti-Corruption Commission (ACC) are working on a mechanism to stop capital flight.
A joint cell of the central bank and the NBR is being set up to collect data on commodity and machinery prices in overseas markets to mis-invoicing. The BB has started working with the Export Promotion Bureau and banks to ensure that export proceeds return to the country on time.
The government authorities should adopt and fully implement all the Financial Action Task Force's anti-money laundering recommendations. Regulators and law enforcement authorities should ensure that the anti-money laundering regulations, which are already on the books, are strongly enforced.
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